UAE will power through global recession
For industrialist Faraj bin Hamouda, the challenges to doing business in the UAE at the moment are clear: inflation and the dirham’s peg to the dollar.
Speaking to Emirates Business, the founder of Bin Hamouda Group said this is a charmed period in the UAE’s development and the economy shows signs of powering through international recessions. However, he noted more assistance could be given to support businesses, including better financing options and land grants. He also defended the auto industry in the UAE and said pricing is fair, despite the fact that better deals can be had in Al Ain.
Do you think the UAE is an attractive environment for foreign investment? What is your opinion about this kind of investment and its effect on the national economy?
The UAE is at the peak of its economic activity, and its markets are open to all countries. The UAE enjoys stability and has wise leadership and clear development plans. In addition, the UAE is characterised by an economic system free from taxes.
I think all these factors attract foreign investment that has increased recently. The past few years saw the entry of international investors into the country and establishment of giant projects, but the UAE did not impose any restrictions on their activities and adopted the principle of economic freedom.
Foreign investment in the UAE is in its golden era. Besides, the UAE’s hospitable and peaceful people attract nationals from all across the world. Undoubtedly, all these factors create a healthy climate suitable for foreign investment.
National and international reports quote an increase in foreign direct investment of Dh63.68 billion in 2006, an increase of 10.8 per cent compared to 2005. The UAE even became first in the region in terms of attracting foreign investment.
What about money from the UAE going to investments outside? Is it better to invest this money inside the UAE, as there is a climate attractive to investment?
Many local businessmen invest their money in the UAE. But some have huge surplus that they invest in outside markets. This kind of investment is healthy, because diversification is necessary due to rapid fluctuations in the global economy.
Do you think high inflation rates have passively affected investment revenues recently in the UAE?
Inflation is a problem and big danger. Recently, investment revenues were affected by the high rates of inflation, which also damaged the UAE economy and reduced profits. The dirham’s purchasing power fell by 50 per cent, as well. Inflation is a danger to UAE residents and foreign investors. The government should find a quick and effective solution by using various monetary policy tools. Also, the Central Bank should limit consecutive price rises in the UAE.
There have been many calls to drop the dirham’s peg to the dollar or revalue it. What is your opinion?
The UAE’s economy is very strong and no longer needs to be pegged to the dollar, which regularly declines in the background of the US economy’s slow performance and has contributed to the inflation in the UAE. The US has adopted a monetary policy, which is encouraging for investment, through using low interest rates.
This policy does not suit us at all, because we have high growth rates. Inflation should be limited through raising interest rates. Discrepancy in interests between us and the US pushes us to drop the dirham’s peg to the dollar. I question, ‘What forces us to depend on their weak dollar and not depend on our strong dirham?’ I suggest changing to a basket of currencies, even if that happens in a gradual way. We should benefit from Kuwait’s experience in this regard.
Around a year ago, the Ministry of Economy made alterations on the trade agency law to end the phenomenon of the sleeping agent. It was said then, and is still being said, that Bin Hamouda Group was the biggest beneficiary of the alterations, as it obtained many important brands, such as Chevrolet. What is your opinion of the law and its alterations?
Trade agencies are an international and public system. The WTO does not oppose the system, but it prevents monopoly. The mother company has the right to choose the person who will get the agency. But the agent should take care of his agency well and perform his duties. I prefer the agent to be a UAE national, because whatever the conditions are the UAE national agent will not leave his country. But an expatriate agent will not hesitate to move to another country if the UAE, for example, faced obstacles.
I think agencies owned by UAE nationals serve the national economy a great deal and help consolidate the position of the country in many aspects as they have a good reputation abroad.
A few weeks ago, the Ministry of Economy drew up the Commercial Arbitration Law between owners of trade agencies and external bodies. Why is this law important?
Any law protecting the rights of UAE nationals should be welcomed. The development going on in the world necessitates legislation to process commercial transactions quickly. Such a law will enhance confidence in the UAE and its investment climate and increase transparency and credibility. The new law will facilitate many things that used to take a long time and the Ministry of Economy deserves to be thanked for that.
You are basically an industrialist. What obstacles does the industry face?
Finance is the most important encouraging factor. Neighbouring countries’ experience is the biggest evidence for that. In some of these countries, the finance percentage ranges between 85 per cent and 95 per cent. Their governments also provide their national investors and industrialists with free land.
There are other incentives, such as opening markets for export and getting rid of obstacles. However, things are very different in our country and we need radical changes to provide industrialists with a new and attractive environment. For example, obtaining land is very difficult. If the land is available, then there is the problem of expansion. Intense labour laws are harmful.
I think what officials say contradicts reality and there are obstacles that need prompt solutions. Industrialists face problems in terms of land, finance, labour force, accommodation and high costs of raw materials. We must get rid of decisions issued without a study of the reality.
The Ministry of Economy recently withdrew a number of Chevrolet cars from the market due to manufacturing faults. Other cars from different agencies were also withdrawn. Will that affect your sales, since you are one of the main car agents in the UAE?
Some mistakes happen sometimes in the manufacturing of cars. The agent has nothing to do with that. I think the withdrawal of the cars of many agencies is something positive. Bin Hamouda Group does not oppose this procedure and supports it.
There have also been complaints about the high cost of cars, including American cars. It has pushed buyers to purchase cars from Al Buraimi, on the UAE-Oman border, where agents sell cars at lower prices. What is your view on this practice?
When we talk about the price of cars, we should take into consideration the high costs that the agent in the UAE bears. The costs in the UAE are higher than in other countries. There are rents of showrooms and rents of residences for workers and employees. The fall of dollar has passively affected cars, too. In spite of that, as an agent, I can say we do not exaggerate prices at all. And our sales have not been affected by the fact that many consumers buy their cars from Al Buraimi, Qatar or Oman.
Faraj bin Hamouda
Founder of Bin Hamouda Group
A prominent businessman in Abu Dhabi, Faraj bin Hamouda has headed the Industrialists Association in the capital and was a member of the Federal National Council, the Abu Dhabi National Bank and the Zakat Fund Management.
As the founder of the Bin Hamouda Group, which operates the franchises for several international brands including Chevrolet, he has overseen the group’s expansion into contracting and real estate. Recently, the Abu Dhabi Economic Forum honoured Bin Hamouda as a distinguished economic personality in the history of the emirate.
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